Revenue abandon Lenihan’s Professionals’ Tax Plan

Revenue have today abandoned Brian Lenihan’s plans to tax employees on professional subscriptions and membership fees.

In an eBrief unveiled this evening,  Revenue confirm that most professional subscriptions will continue to be exempt from tax under Benefit in Kind rules.

This reverses the former Finance Minister’s announcement in last December’s Budget, that the existing Benefit in Kind exemption on these fees would be scrapped from January 2011. This would have meant that where an employer paid a professional membership or subscription fee on behalf of an employee, the employee would have faced a tax, PRSI and USC charge on the amount paid.

Today, Revenue confirm that the exemption will still apply

• Where the employee is required by law to be a member of a professional body, in order to carry out their work. This includes architects who (under the Building Control Act 2007) must be registered with the Royal Institute of the Architects of Ireland; and Health care professionals who are obliged by the  Health and Social Care professionals Act 2005, to be registered with the Health and Social Care Professionals Council.

• Where the employer requires the employee to hold a practising certificate or licence, eg accountants  working in professional practices.

• In certain other situations, where the employee is a member of a professional body which is relevant to their occupation.  This will cover accountants, engineers and others working in professional capacities in industry.

Revenue stress that the BIK exemption applies only where the professional subscription is relevant to the employee’s work. They cite practical examples to show that the exemption will not apply to a qualified architect who works as a HR manager, or a trained solicitor working as a media presenter.

The Revenue eBrief on this subject outlines 11 practical examples which illustrate how these rules will work in practice. Revenue also stress that Benefit in Kind PAYE, PRSI and USC must be charged on all cases not covered by the exemption.

I think this is a very positive move on Revenue’s part. The original plans to scrap this BIK relief were badly thought out, and a very poor appreciation of the much-vaunted ‘knowledge economy’.  It is nice to see Revenue taking action to restore this relief in most cases.

That said, I wonder would  such a u-turn have been politically possible if Mr. Lenihan was still Minister for Finance. Maybe it is time for his successor Michael Noonan to work alongside  Revenue in reversing some of the anti-business and anti-employment measures introduced in recent Budgets – several of which have proved in the meantime to be counter -productive.

Revenue’s USC Guide is now 38 pages long!

Revenue have now updated their frequently asked questions (FAQ) on the Universal Social Charge (USC) in an attempt to address a seemingly endless sequence of queries that have arisen in relation to this charge

Among the issues now covered by the FAQ are:

• Clarification on the application of the USC to medical card holders.
• How the USC is calculated for self-employed high earners who also have  PAYE income.
• How the USC affects over 65′s with DIRT-exempt interest earnings.

What I find most interesting about the FAQ is the fact that it now extends to a mind-boggling 39 pages!

When former Minister Brian Lenihan introduced the USC in his Budget Speech last December, he said he wanted “to move steadily in the direction of an income tax system that is fair, universal in its application and more easily understood”.

Three months later, with Mr. Lenihan is out of office, the ‘easily understood’ USC is proving so complicated that it now warrants a 38-page Revenue document to explain how it works in practice.  This fact alone would suggest to me that the USC has been an abject failure.

In fact, I believe that much of the current public resentment about the USC stems from the fact that people just don’t understand it.

The new Minister, Michael Noonan, and his officials should scrap the USC, and adjust income tax rates and credits  in order to achieve the same outcome.

Employers’ PRSI Incentive – Boost or Dole Trap?

The Employers’ PRSI Incentive Scheme  – Is it merely a dole trap for graduates?

Newly-recruited employees can enjoy an exemption from employers PRSI for 12 months, under the Employers’ PRSI Incentive Scheme. This scheme was introduced in Budget 2010 and extended in Finance Act 2011 to continue until the end of 2011.

The incentive is open to employers who create new and additional jobs in 2010 and 2011. If you created a new job in 2010, before the scheme was launched in June 2010, you may still qualify for an exemption of employer’s PRSI for this job.

The 12 months exemption applies from the date you are approved for the scheme.

Rules

Both the job you create and the person you employ must meet certain criteria. While you are waiting to be approved for the scheme, you should operate the standard employee and employer PRSI.

The person you employ must be on the FÁS Work Placement Programme for at least 3 months or be getting one of the following social welfare payments for a continuous period of at least 6 months:

• Jobseeker’s Benefit
• Jobseeker’s Allowance
• One-Parent Family Payment
• Disability Allowance

The job must:

• Be created in 2010 or 2011
• Be a new and additional post/job – employers will not be allowed to substitute existing employees to avail of the scheme
• Be for at least 30 hours per week
• Last for at least 6 months. If the employment ends within 6 months of getting the exemption, you may be liable to pay the employer’s PRSI contributions for that employee.

Exemption limits

You can only get an exemption from employer’s PRSI for up to 5 employees. A higher limit of 5% of their existing workforce applies to large employers.

How to Apply

If you have a new employee and are eligible for the scheme, fill in Form PRSI 20 and send it with a current tax clearance certificate to

Department of Social Protection
Floor 2
Shannon Lodge
Carrick-on-Shannon
Co. Leitrim

Is it enough?

One of the biggest economic problems in Ireland right now is that so many employers are scared stiff of the downturn getting worse. As a result, they are not hiring staff unless absolutely necessary.  Employers PRSI is often (quite correctly) cited as a disincentive to employment.   This incentive aims to address this problem , but in truth it is far too restrictive to do so in any meaningful way.

A Dole Trap?

The fact that it is restricted to workers on social welfare and/or the Fas Work Placement Programme  is a case in point. This would imply that a new graduate must stand in the dole queue or sit on a Fas course for 3/6 months after they graduate before they can take up employment under the scheme.  Are we in danger of creating a ‘dole trap’ for our best and brightest?

30 September Pay & File Plan ‘scrapped’

RTE News are reporting a claim from independent TD Michael Lowry that the Government have abandoned their plans to bring forward the annual  Pay & File tax deadline to 30 September, as part of the 2011 Finance Bill.

According to RTE, ‘Mr Lowry said that the Government also agreed not to bring forward the pay and file deadline of 30 September.’

This is very welcome news and avoids the nightmare prospect of an entire month being shaved off this year’s tax return season, as I highlighed last Friday.

Well done Mr. Lowry. And thank you…

 

High Earners can beat Budget 2011 Pension Blues

High earners can beat a Budget 2011 cut in pensions tax relief if they top-up their pensions before 31 December next.

This week’s Budget cut the earnings ceiling for tax relief on personal pension payments, from €150,000 to €115,000. This means that, from 1 January 2011 onwards, the tax relief claimed by a high-income earner in respect of pension payments is limited to the first €115,000 of their earnings.

Liam Ferguson, of Ferguson and Associates has kindly confirmed to me that this lower ceiling relates to ALL contributions physically made in 2011. This includes contributions made by 31 October 2011, which can be backdated to the 2010 tax year for tax relief purposes.

So if you are in a high income bracket, and you leave it until next October to pay a Personal Pension contribution for 2010, the lower ceiling will apply to your contribution.

However, if you top up your pension by 31 December 2010, before the higher €150,000 earnings ceiling expires, you can still avail of the higher ceiling.

21 days left to act…

Budget 2011 – Business Measures

The Budget includes a range of measures affecting the Business sector including  changes to Relevant Contracts Tax, a revamp of the Business Expansion Scheme and the scrapping of several business tax reliefs.

Relevant Contracts Tax

The Relevant Contracts Tax (RCT) system, which applies to construction, forestry and meat processing contractors, is being reformed.

The current RCT withholding tax rate of 35% is being replaced by a two-tier system, in an effort to combat the black economy.

• A lower rate of 20% will apply to subcontractors ‘registered for tax with an established compliance record’

• The existing rate of 35% will apply to ‘subcontractors not registered for tax’.

The RCT monthly repayment system is being abolished, and will be replaced by an offset system.

In addition, Principal contractors will be subject to a stronger RCT reporting system in order to ‘enhance compliance and reduce the opportunities for fraud’.

Employment and Investment Incentive

The Business Expansion Scheme is to be revamped and renamed as the ‘Employment and Investment Incentive’, with a big increase in the amount that companies can raise under the Scheme.

Relief for Energy Efficiency Measures

A new scheme is to be introduced to encourage people to make their homes more energy efficient. Tax relief will apply to expenditure up to €10,000. This will be allowed at the standard rate of income tax.

Tax Reliefs Abolished

The following Tax Reliefs will be abolished, with effect from 1 January 2011 unless otherwise stated.

• Tax Exemption for Patent Royalties

• Tax relief on Loans to invest in certain companies.

• Accelerated capital allowances for Farm Pollution Control.

• Tax exemption from BIK for Employer Provided Childcare.

• Abolition of tax relief on subscriptions to professional bodies.

• Capital expenditure on Mining plant & machinery and plant

• Approved Share Options Scheme (from 24 November 2010)

• Tax relief for new shares purchased by employees.

• Tax exemption relating to National Co-Operative Farm Relief Services Ltd.

Budget 2011 – Stamp Duty on Residential property

The 2011 Budget includes major changes to Stamp Duty on residential property transactions.

The main change is the introduction of a new flat rate of 1% for transfers of residential property to 1% on properties valued up to €1 million, and a 2% rate on properties valued over €1 million.

The following Stamp Duty reliefs and exemptions are abolished.

• First time buyer relief
• Exemption for new houses under 125 sq m in size
• Relief on new houses over 125 sq m in size
• Consanguinity relief from for residential property transfers between close relatives.
• Exemption for residential property transfers valued under €127,000
• Stamp Duty ‘site to child’ relief

 

The changes apply for contracts executed on or after 8 December 2010. Transitional measures will apply to contracts currently in progress that are completed by 30 June 2011.

 

Budget 2011 – The Universal Social Charge

The Health Levy and Income Levy are to be abolished in 2011. They will be replaced by a new Universal Social Charge, or USC.

The USC Rates and Thresholds are as follows:

Income Threshold	USC Rate
Incomes below €4,004	Exempt
Incomes between Zero and €10,036	2%
Incomes between €10,037 and €16,016	4%
Incomes over €16,016	7%

Budget 2011 – Income Tax Credits and Bands

The following Income Tax Credits & Bands were unveiled in today’s Budget.

In general Tax Credits and Bands have been cut by 10%.

Income Tax Credits & Bands  – Budget 2011
	2011	2010
	€	€
Employee Tax Credit	1,650	1,830
Personal Tax Credits
- single	1,650	1,830
- married	3,300	3,660
Widowed person bereaved in year of assessment	3,300	3,660
One Parent Family Tax Credit	1,650	1,830
Home Carer Tax Credit	810	900
Dependent Relative Tax Credit	70	80
Incapacitated Child Tax Credit	3,300	3,660
Blind Persons Credit
- single	1,650	1,830
- married (both blind)	3,300	3,660
Additional credit for certain widowed persons	540	600
Widowed Parent Tax Credit:
year 1	3,600	4,000
year 2	3,150	3,500
year 3	2,700	3,000
year 4	2,250	2,500
year 5	1,800	2,000
Age Credit
- single	245	325
- married	490	650
Standard Rate Bands from 1 January 2011
Single/Widowed	32,800	36,400
Married One Income	41,800	45,400
Married Two Incomes	65,600	72,800
Max income transferable between spouses	41,800	45,400
One Parent/Widowed Parent	36,800	40,400
Age Exemption Limits
Single	18,000	20,000
Married	36,000	40,000

 

 

Budget 2011 Latest

The 2011 Budget has been announced by Brian Lenihan, Minister for Finance.

The key tax measures announced by the Minister in his Budget Speech are as follows:

• Income Levy & Health Levy to be replaced by a new Universal Social Charge.

• Tax Bands and Credits to be cut by 10%

• Nine tax relief schemes are to be abolished

• Restrictions on the carry forward of property-based capital allowances and Section 23 reliefs.

• Capital Acquisitions Tax tax-free thresholds to be cut by 20%

• D.I.R.T. tax increases to by 2% from 25% to 27%.

• Pension Tax relief employee PRSI & levy relief to be abolished.

• No change to 12.5% Corporation Tax rate.

• Employer PRSI relief on employer Pension contributions to be cut by 50%

• Business Expansion Scheme to be revamped & renamed – a new investment limit of €10 million will apply up to 2013.

• Accelerated Capital Allowances scheme for energy efficient equipment is to be extended.

• Major revamp of Residential Stamp Duty with a 1% flat rate on transactions  up to €1m, 2% thereafter. All current Residential Stamp Duty exemptions & reliefs to be abolished – changes apply from tomorrow 8 December, transitional arrangements for contracts in progress, once they are completed by 30 June 2011.

• Major changes to Relevant Contracts Tax with a cut from 35% to 20% for contractors with an established compliant tax record. Existing rate of 35% will continue to apply to other contractors.

• Travel Tax to be cut to €3 from 1 March 2011, subject to review at end of 2011.

• Excise Duty rises of cent per litre on petrol, 2 cent per litre on auto diesel, applying from midnight tonight.

• Internet betting to be subject to Betting Tax as applies to Betting Shops.

The Minister’s speech is now online.